India-born hedge fund wiz sees worry clouds on fiscal horizon

“We are very cautious because of a worsening fiscal outlook,” Hariharan said.

Written by P Vaidyanathan Iyer | New Delhi | Published: March 5, 2012 9:48:25 pm

2011 was a difficult year for profithunters on Wall Street. But Hari Hariharan,chairman & CEO of New World Investments Management LP,a hedge fund that manages $ 2.5 billion in assets,rustled up over 25 per cent returns for his clients through what he calls “very tactical trading”. The firm’s $100 million in earnings catapulted him,the only Indian,to the Forbes list of 40 highest-earning hedge fund managers of 2011.

“If you go back in time a bit,all went crazy after the QE2 (the second round of quantitative easing in the US) in November 2010. They put out growth and inflation estimates aggressively. But these were inconsistent with the QE2. There was a massive selloff in bond markets over the next four months. I,however,went aggressively long on bonds. I was betting that the economy was not going to grow the way many thought,” said Hariharan from New York,his home since 1990.

The 55-year-old IIM-A graduate formed NWI in 1999 after a 17-year career at Citibank NA,where his last role was senior managing director and division executive of the International Corporate Finance Division.

NWI does not have material exposure to India. “We are very cautious because of a worsening fiscal outlook. India is adding unaffordable social expenditures like the food security Bill to a deficit already struggling under the weight of subsidies,” he said. Selling large amounts of negative real rate bearing government debt to banks,insurance companies and pensions funds is akin to financial repression,he feels. He is also concerned that the worsening credit quality of public sector banks may lead to recapitalisation demands,adding to the fiscal burden.

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